That fact that Wall Street and Washington DC aren't in an all-out war over this is all you need to know that the politicians are in someone's pocket and the average taxpayer is being set up to get screwed again.

You mean there is risk in investment? Well if we just eliminate that, just think how cool it will be. Everyone gets rich all the time. Yea, pass that law please.

I got a national question: Are we all willing to give up the increase in the value of our homes over the last 15 years in exchange for avoiding the recent drop that has caused this recession? The U.S. lost about 20% of it's value in this recession. All of that 20% was created in just a couple of those years. All the rest was also created under the "recklessness of wall street".

Maybe we can avoid risk in the future and the growth that comes with it. I have more faith in government's ability to eliminate growth than to eliminate risk, no matter which they are aiming at.

Too late anyway, Russ. The Democratic spending bacchanal has broken the bank.the Dow is the same as it was 10 years ago, and dropping.

"The general business activity index fell to negative 4 from 2.9, the company outlook index fell to negative 2.8 from 19.6. The production index fell to negative 1.9 from 20.8 in May; capacity utilization fell to positive 2.7 from 18.7 in May. New orders fell to negative 8.2 from 15.8 in May.

Fabricated Metal Product ManufacturingAfter two consecutive months of increased activity, we have seen a dramatic drop in new business, with no backlog for July and beyond. We are having considerable trouble with our bank; although we are not in default and are making all payments, the bank has not executed a loan facility renewal after almost 90 days past our renewal date. There is a high degree of uncertainty in the marketplace, with owners and their designated contractors and design engineers seeing a dramatic reluctance to initiate planned projects, both maintenance and capital expenditure.

We have yet to see any evidence in Texas or across the country of an economic recovery."

What to do about those evil investment bankers who arranged an IPO for an electric car company this week. So horribly mispriced that the stock shot up 40% in a day. The electric car company should have taken up a collection: no need for evil investment bankers. Evil bad wall street raising money for electric cars. Bad. Bad. Bad.

He's right. From the 50,000 foot level, I don't want financial regulatory reform which eliminates risk (that's counterproductive and will lower the standard of living for all of us). However, I do expect to see some type of regulatory firebreak which would reduce the probability of a large systemic failure. From my perspective that requires derivative regulation, tightens up financial leverage limits, addresses the impact of "too big to fail" institutions, and at least acknowledges the federal government spawned 800 pound gorilla in the room (Fannie Mae/Freddie Mac). This bill is pretty much a fail from all these perspectives.

One, caveat emptor is still a pretty good rule. I expect big financial institutions to have sophisticated risk managment analysis tools available to them. Basically their bets are their bets, but if they fail I don't want to see them taking down the entire financial enterprise. I still believe that's why TARP (or something like it) had to happen. We were looking at a cascading systemic failure. That was worse than TARP (even if nobody likes TARP).

2. Saying the other side is idiots and should not participate in regulatory discussions is just not helpful (even if they are). Most standards and regulatory reviews improve with a good cross functional review (nobody knows everything and different perspectives help). You need to start with a frank discussion and establishment of what you're trying to achieve (basically, what are your requirements, because if you can't state them, you can't measure your success (or failure)). My opening position: I don't want total deregulation with institutions and instruments which can basically destroy our financial society.

"if the idiots who created the mess were the ones who had been allowed to write it."

Yeah, that sums up my feelings nicely.

I think we'd be better off if Congress started over on this, from scratch, after the next election. Maybe, just maybe, enough of the fools who got us into this mess will be gone (I know, wishful thinking) and we can get something passed that's simple enough that it might have a chance of really addressing the problems.

They can't bring up the subject without getting slammed themselves, and rightly so.

It never was a Dem/GOP issue in terms of who caused it. Feingold blames the whole collapse on the repeal of Glass-Steagall.

Five years later, I was one of only eight Senators to oppose the Gramm-Leach-Bliley Act, the bill that repealed Glass-Steagall and paved the way for this disastrous recession, which has been an economic nightmare for so many Americans.

The money quote from the linked artice:The U.S. economy is enormously complicated. Screwing it up takes a great deal of cooperation. Claiming that a single piece of legislation was responsible for (or could have averted) the crisis is just political grandstanding.

I agree Hoosier, but just think of the potential electoral caressing associated with that grand standing. Empirical outcomes are always someone else's problem, it's only what we intended (or desired in our secret heart) that matters (I think this might be a restatement of the old "road to Hell" rule).

Feingold has just argued the U.S. Congress out of existence. Passing bills that purport to do noble things is what Congress does.

I thought Pete Stark did that yesterday. If you didn't see or hear it, it was the quite possibly the single-most disgusting example of elitist incumbent behavior I've ever seen...possibly greater than Sheila Jackson Lee's cell phone debacle. What Stark did wasn't humor. It was, if anything, malicious sarcasm at best.

Not so. I'll even grant you that the first question by the Minuteman was asked by a "crank" as you put it. However, the follow up questions from other members of the audience were nothing out of bounds for a constituent to ask an elected official. Particularly his answer that the "border was fine" and his snark about opening up a ladder company.

It was pathetic. I'm not given much to getting to roiled over things like this, but this was a blatant example of "nya nya nya, I'm better than you".

The Gramm-Bliley Act was not the cause that I can see. The piece of legislation that led to the meltdown was the deliberate omission of derivatives regulation in the Commodities Futures Modernization act of 2000, passed as a rider to the budget bill, passed right before the Christmas recess, during the recount fever.

The lesson of the failure of Long Term Capital Management in 1998 -- which lost $1.6 billion in credit default swaps -- was lost on Congress.

And FLS, just as follow up. Since the linked article states that Feingold lost heart when the amendment re instituting Glass-Steigell failed. And since that amendment was co-sponsored by McCain, has your link lead us back to the "source" of evil or has it brought us back to square one?

The piece of legislation that led to the meltdown was the deliberate omission of derivatives regulation in the Commodities Futures Modernization act of 2000, passed as a rider to the budget bill, passed right before the Christmas recess, during the recount fever.

Those very same derivitives on CDOs which were backing subprime mortgages thank you Community Reinvestment Act.

It never was a Dem/GOP issue in terms of who caused it. Feingold blames the whole collapse on the repeal of Glass-Steagall.

Right, Feingold isn't making it a Dem/Repub issue. I'm the one saying that both Republicans and Democrats are at fault. Congressional leaders from both parties should be shown the door.

Yet none other than Bill Clinton and others insist the repeal actually softened the fall.

Clinton is partially correct: If Glass-Steagall had still been the law of the land, Goldman, Fidelity, and others would not have been able to transform themselves into retail banks, and would have required even more bailout from the Fed. Allowing banks to cross market lines is a good thing.

But Clinton's wrong if he thinks this exonerates his administration. Clinton's team (especially Reich) made a conscious decision to NOT regulate the new derivative products that would later cause such problems.

Republicans at the time agreed that CDS and CDO's needed no regulation, and thus have no room to throw stones. This still doesn't let the Clinton admin off hook.

Moreover, note that Democrats largely went along with Gramm-Leach-Bliley, with only a few exceptions as Feingold notes. Just as importantly, Democrats and their allies (hello ACORN!) continued to push relaxed lending standards at all levels, from Fannie/Freddie all the way down to community banks.

Community mortgage-lending banks went broke after deregulation. GHW Bush's bailout of the failed S&Ls cost US taxpayers $125 billion dollars -- quite a chunk of change for the time.

I don't think that I would go so far. Rather, as other types of banking entities moved into mortgage lending, the S&L's had to move in the opposite direction, or perish.

The other thing that happened at this time, and helped compound the S&L crash, was that deposits went world wide, and the more aggressive S&L's were able to borrow from an ever growing pool of investment dollars. There was, all of a sudden, a national or international market for CD's, all federally insured.

So, a bunch of S&L's discovered that they could double in size in a year, then double again, just by selling CD's in this market. What they may not have taken into account was that their margins were getting tighter and tighter. Then, when the housing market tightened, they couldn't pay for the money they borrowed, and doubled down, moving to ever riskier investments in order to increase their yield. But these riskier investments were also more likely to go belly up, and so there was a vicious cycle that ultimately ended in these firms going bust.

I should note that the well run, conservative S&L's survived just fine through this. My father was on the Board of one of them, that survived and was profitable for over a hundred years (except for one year during the Depression), until they sold out to what is now Bank of the West, a little over a decade ago.

Let me suggest though that what really killed community mortgage lending was the advent of the packaging and reselling of mortgage loans. It just didn't make economic sense to lend money, then sit on the loans for up to 30 years, as they money supporting those loans fluctuated in cost. It was one thing when people would leave money in their savings accounts for decades. Quite another when they would shop CD rates every time it was time to roll them over. So, the mortgage lending business specialized. Some specialized in originating loans. Others in servicing the loans. Meanwhile the debt had been bundled and sold off, with the proceeds being relent to others.

That is, until the sophistication of the packaging and reselling finally got so out of hand, that we found ourselves two years ago in another mortgage related financial crisis.

One of the biggest failures was Charles Keating's Lincoln Savings and Loan. Of the five Senators Keating blessed with campaign contributions, only John McCain remains in office today.

This is guilt by association. Keep in mind that Keating was local to Phoenix and ran in the same social circles as Cindy McCain. Taking campaign contributions from your local business leaders is what politicians do. If this were really a problem, then let's look at what shady people have contributed to the President's campaigns over the years. Of course, the difference is that at the time that McCain took Keating contributions, he didn't know yet what Keating was up to, while these less than sterling contributions to Obama were known to be shady at the time.

Three of the other four though were from other states, with little connection to Keating, except through their work in regulating the banking industry. They also intervened for Keating with the regulators, and didn't walk away at the first whiff of trouble, as did McCain.

The other Senator I felt sorry for in the Keating scandal was John Glenn. Former Marine Corp pilot, astronaut, etc. Same honor code that I think both thought that they had maybe inadvertently violated here. I say inadvertently, because I don't think that either of these former military pilots realized that they were being taken advantage of here, felt that they had been, and as a result, acted less than honorably.

It was pathetic. I'm not given much to getting to roiled over things like this, but this was a blatant example of "nya nya nya, I'm better than you".

Stark's behavior is indicative of how the Democrats have been acting since 2006. When you look at Stark Etheridge, Boxer, Barron Hill et. al, they aren't even giving the pretense of kissing the ass of the electorate anymore; they're flat out telling us to piss off.

FLS: Community Banks and S&Ls are not the same thing. You note: "Community mortgage-lending banks went broke after deregulation." Over a hundred community banks have been seized by the FDIC this year. they clearly did not go broke after deregulation. Hundreds more hang in the brink awaiting financial regulations that will mandate their capital reserve requirements.

You also say "GHW Bush's bailout of the failed S&Ls cost US taxpayers $125 billion dollars -- quite a chunk of change for the time." There was no "bailout" of the S&L industry in the sense that we had a bailout of, say, AIG. The industry failed in spectacular fashion and the real estate assets were liquidated by the Resolution Trust Corporation. The collapse of the S&S industry did indeed cost the taxpayers billions but those were in the form of paying for insured deposits and not of maintaining the existence of the banks.

Bruce Hayden: You are right about the competitive pressures on small town, community, banks. But many continue to lend using a club form of participating in other bank's larger loans. Banker's Banks exist in several regions and fundamentally act as syndicators of loans they originate and service. One of the larger ones, Silverton, failed last year and its assets are being sold by the FDIC.

Clinton's team (especially Reich) made a conscious decision to NOT regulate the new derivative products

What statute -- existing at that time -- would have given "Clinton's team" the authority to regulate credit derivatives? In fact, wouldn't it be easier for Obama to regulate them now, under the authority of that statute, than wait for Congress to act?

FLS: "The entire structure of credit derivatives (and derivatives squared, and derivatives cubed) rested on Fred and Ethel continuing to pay their high interest mortgages."

This is exactly correct. I wouldn't agree that Fred and Ethel had high interest mortgages, however, at least not initially. Fred and Ethel thought they could get low floaters and improve earnings enough to pay the adjusted rate. Mortgage rates, even those adjusted low floaters, were still historically low. It was the leverage levels that got them. But you are quite right. If Fred and Ethel had kept their end of the bargain the financial crisis would not have occurred.

Bruce: I've gotten mortgage loans from thrifts and descendants of thrifts, while getting car loans, student loans, etc. from local banks. If community banks were in the habit of making mortgage loans it's news to me. But why would they have wanted to fall into the same trap as the S&Ls, with a huge gap between the low interest they were receiving on thirty year loans, and the high interest they would have had to pay on CDs?

But every local bank I ever dealt with has subsequently merged into a larger bank -- I'd be hard-pressed to find a community bank today.

HD: Unfortunately no illegal immigrants showed up to Pete's townhall meeting to offer their views on border security. So we don't know what he would have said to them.

FLS: The community banks loaned significant capital to land buyers/homebuilders who paid higher rates than the end user home buyers. The spreads were greater. The home mortgage loans were sold off to wall street. It was a bit of a factory that existed on the fringe of every major market where land was available. Some community banks did indeed forget the S&L CD conundrum and offered up enticing yields to local depositors. Another reason why the Fed had to raise the levels on insured deposits.

A test of your objectivity is if you agree that both parties's long-serving Congress critters are guilty of being asleep at the switch in the financial crisis. If you don't agree, you are blinded by partisanship.

That said, both parties' long-serving state and local officials will soon be called to account for the insolvent govt worker pension funds.

3. The Causes of AIG’s ProblemsThe trigger and primary cause of AIG‟s collapse came from inside AIGFP. This businessunit, which included CDS on collateralized debt obligations (CDOs) backed by subprimemortgages, produced unrealized valuation losses and collateral calls that engulfed AIG in the fallof 2008.

Michael: I think the root cause of the mortgage meltdown was historically low interest rates. Subprime mortgages carried higher interest rates, because the risk of default was priced in. But securities made from pools of these mortgages were rated as if the risk of default was the same as for prime borrowers. Thus they were paradoxically safe and high-yielding investments. Further, CDS "insurance" against the risk of mass default was cheap. (Turns out it was because nobody knew the risk. It was like selling life insurance, while thinking your customers were all immortal.)

I have to think in the back of everyone's mind was the thought that in case of default, banks would own valuable appreciated property, because real estate values always go up, correct?

1) No financial institution may have more than 3 percent of total US deposits;2) No financial institution may have more than 5 percent of total US investment portfolios;3) No agency of the federal government shall bail out any financial institution with the exception of deposit insurance.

The problem is Too Big To Fail. The answer is to cut them all down to size.

1- a maximum cap on loan interest rates, 2- Every govt agency and NGO must publish audited financials [attesting to their solvency] at least every other year. This would include soc security and medicare agencies.

The problem was that Fred and Ethel paid too much for their house. It's that simple. If they or their lender simply said: No this home is not worth twice what it was 3 years ago no matter what people are paying at the moment, then no crisis would exist, regardless of what kind of creative lending was used or what products where derived from it.

If people refused to pay those prices and banks to lend at them, then right now homes would probably be priced near where they are but rising and the markets and employment would be healthy.

The individuals and banks who made those mistakes should be the ones out that money, not taxpayers and responsible borrowers and lenders.

That's how it should be if you want to reinstall a sensible market in housing rather than kick the can, like we are.

I don't devote my life to politics. Too time consuming. I have chosen Russ as my bellwether. I consider myself a rational liberal, and when Russ bucks the trend, I feel it's worth taking a look at. In this instance, I think he's correct. And despite the yes vote, he did the same for healthcare. It IS politics after all.